First Industrial Realty Trust - Earnings Call - Q2 2017

Transcript

Speaker 0

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial Second Quarter Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. Mr. Art Herman, Vice President of Investor Relations, you may begin.

Speaker 1

Thanks, Krista. Hello, everybody, and welcome to our call. Before we discuss our second quarter twenty seventeen results, let me remind everyone that our call may include forward looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, Thursday, July 2737.

We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward looking statements and factors which could cause this are described in our 10 ks and other SEC filings. You can find a reconciliation of non GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Peter Bacilli, our President and CEO and Scott Musil, our CFO, after which we'll open it up for questions.

Also on the call today are Jojo Yaffe, our Chief Investment Officer Peter Schultz, Executive Vice President Chris Schneider, Senior Vice President of Operations and Bob Walters, Senior Vice President of Capital Markets Now let me turn the call over to Peter.

Speaker 2

Thanks, Art, and thank you all for joining us today. Our team delivered another excellent quarter throughout our business. At June 30, occupancy was 95.7%. Cash same store NOI growth for the quarter was 4.2% and cash rental rate change was 9.2% on new and renewal leasing. Our results continue to reflect the strength of the industrial real estate marketplace and the strong operational focus of our people and platform.

Our team continues to see demand for space across all of our markets with new requirements driven by growth in the economy, e commerce expansion and supply chain optimization. A great example that illustrates many of these themes is our lease involving UPS at First Park at PV-three 03 in Phoenix. Recall that we were successful in leasing the full 618,000 square foot building as well as a 66 acre parcel that we purchased in a separate transaction for $11,600,000 Our total investment for the building and the leased land was $45,400,000 with a GAAP yield of 7.2%. Again, when we talk about GAAP yield, we're referring to our first year cash NOI divided by our GAAP investment basis. We remind you that UPS has a purchase option thirty nine months into the lease.

We were willing to provide the option because of the additional value creation opportunities we now have at that park. In a separate transaction, we acquired an additional 97 acre development parcel for $14,700,000 along with an option to acquire another 75 acres in the park. From a strategic standpoint, the proximity to UPS will be a benefit for future tenants, especially e commerce related users, and we are well positioned to meet their needs. Moving now to the topic of new supply. While new deliveries are rising, overall, development remains disciplined.

As we and others have noted before, we generally expect the overall market to be at equilibrium for 2017 and that's been the case for the first half. But it's important to note that individual markets are at different points in the cycle. Right now, there are some submarkets that have inventory to work through along with pockets where buildings in certain size ranges are too plentiful. So we will continue to be disciplined when deploying capital. Regarding investments, we were successful in acquiring four high quality buildings in the second quarter, two of which were in Southern California, our largest market.

We added 123,000 square foot property in San Diego for $21,500,000 at a 5% going in yield. We also acquired 106,000 square foot building in the Inland Empire West for $12,500,000 with a projected stabilized yield of 5.4%. We believe the leases at both of these Southern California buildings are substantially below market. Our other two acquisitions were a 103,000 square foot in Orlando for $8,000,000 with a 6.1% yield and as discussed on our last earnings call, a 181,000 square foot building in the I-seventy East submarket of Denver for $11,200,000 with a 5.9% yield on our total investment. On the development front, we recently completed our first Park 94 Building 2 in Chicago, which is 50% leased.

We also wrapped up construction of our first Sycamore 215 project in the Inland Empire East. Our sixth building project, The Ranch, in the Inland Empire West submarket of Chino is on schedule for completion by year end. At the end of the second quarter, our completed and in process speculative developments totaled $136,000,000 comprising 1,800,000 square feet with a targeted weighted average GAAP yield of 7%. As of June 30, these projects were 17% leased. Given these recent investments and what we see in our investment pipeline, we thought it prudent to raise $75,000,000 of equity via an underwritten offering in June.

Sales continue to be a critical part of our portfolio management efforts and a significant source of capital for reinvestment. In the second quarter, we sold eight buildings totaling 717,000 square feet for $38,600,000 The largest sale was of a vacant 222,000 square foot distribution facility in Minneapolis to a user. These sales were at a weighted average in place cap rate of 4.7% and a stabilized cap rate of 6.6%. Third quarter to date, we have sold three buildings for $18,300,000 totaling 389,000 square feet. These buildings were located in Detroit, Atlanta and Phoenix and were 100% occupied at sale.

Year to date, we've completed $77,400,000 of sales on our way to our goal of 150,000,000 to $200,000,000 for the year. So with more than half of twenty seventeen in the books, we're pleased with the activity we are seeing and the strong market occupancy that is enabling us to drive rent growth. Let me turn it over to Scott for some additional details on the quarter. Scott?

Speaker 3

Thanks, Peter. Let me start with the overall results for the quarter. EPS was $0.32 versus $0.43 one year ago. Funds from operations were $0.38 per fully diluted share compared to $0.36 per share in 2Q twenty sixteen. FFO before impact related to a property sale from our taxable REIT subsidiary was $0.39 per share.

As Peter noted, we finished the quarter with occupancy at 95.7%, down 10 basis points from the prior quarter and a year ago. Sales helped occupancy by 30 basis points compared to 1Q twenty seventeen. Regarding leasing volume, we commenced approximately 3,100,000 square feet of long term leases. Of these, 732,000 square feet were new, 1,500,000 were renewals and 920,000 square feet were developments. Tenant retention by square footage was 79.5%.

Same store NOI growth on a cash basis, excluding termination fees, was 4.2%, primarily reflecting in place rental rate bumps, rental rate growth on leasing and a decrease in free rent. This was slightly offset by lower average occupancy. Lease termination fees totaled $178,000 and including termination fees, cash same store NOI growth was 4.3%. Cash rental rates were up 9.2 overall with renewals up 9.5% and new leasing up 8.6%. On a GAAP basis, overall rental rates were up 19.7% with renewals increasing 19% and new leasing up 21.2%.

Moving now to the capital side. As Peter noted, in June, we issued 2,560,000.00 common shares to raise approximately $75,000,000 in an underwritten equity offering to support our investment activity. On the debt side, as a reminder, April 20, we closed on our $200,000,000 private placement of fixed rate unsecured notes with a weighted average interest rate of 4.34%. As planned, we paid off a $102,000,000 5.95% note maturity in mid May and have another $55000000.7.5 percent note maturity to pay off in early December. Recapping our balance sheet metrics.

At the end of 2Q, our net debt plus preferred stock to adjusted EBITDA is 5.2 times. At June 30, the weighted average maturity of our unsecured notes, term loans and secured financings was five years with a weighted average interest rate of 4.83%. These figures exclude our credit facility. Our credit line balance today is $162,000,000 and our cash position is approximately $22,000,000 Now moving on to our updated guidance for our press release last evening. We narrowed our NAREIT FFO guidance range to $1.49 per share to 1.57 per share with the midpoint remaining the same as our first quarter call.

Before the loss related to the early prepayment of secured debt and the tax expense related to a property sale from our taxable REIT subsidiary, our FFO guidance range is $1.51 to $1.59 per share, which is a $0 per share increase at the midpoint. This increase is primarily due to the lease to UPS at our PV-three 03 development in Phoenix and lower bad debt expense. This was partially offset by sales dilution net of the impact of acquisitions and short term net dilution from the equity offering. The key assumptions for guidance are as follows: average in service occupancy of 95.5% to 96.5% based on quarter end results our new cash same store NOI growth range is now 3.5% to 5%, which is a 25 basis point increase at the midpoint, reflecting our second quarter performance. Our G and A guidance range is $26,000,000 to $27,000,000 And note that guidance includes the anticipated 2017 costs related to our completed and under construction developments at June 30.

In total, for the full year 2017, we expect to capitalize about $03 per share of interest related to our developments. Our guidance does not reflect the impact of any future sales after this earnings call nor any acquisitions or developments other than those previously discussed the impact of any future debt issuances, debt repurchases or repayments other than those previously discussed And guidance also excludes any future NAREIT compliant gains or losses, the impact of impairments and the potential issuance of equity. With that, let me turn it back over to Peter.

Speaker 2

Thanks, Scott. Our focus remains on executing our plan to drive long term cash flow and create value through our platform via development and select acquisitions, while continually refining our portfolio and maximizing value in our disposition efforts. The results of these efforts are reflected in our strong operating metrics and the evolution of our portfolio. Lastly, as we did in the fall of twenty fifteen, we will be hosting an Investor Day in New York on November 8. So we ask you to save the date.

Further information will be forthcoming later this summer, and we hope many of you will make plans to join us. Thank you. And now operator, please open it up for questions.

Speaker 0

Your first question comes from the line of Craig Mailman from KeyBanc Capital Markets. Please go ahead. Your line is open.

Speaker 4

Good morning, guys. Scott, on the same store NOI increase, could you give us a sense of how much of that was maybe related to bad debt? And also, the low end has been coming up a bit. What could happen between now and year end that could get you above the 5% of the high end of the range?

Speaker 5

Craig, this is Chris speaking. So actually on the same store, so the benefit on the bad debt from the first quarter was about 20 basis points that we picked up. And if you look at the back end of the year as far as the where we could pick up some additional, you look at kind of the second half of the year, we're looking at a same store increase of about 3.4%. The kind of construct of that is that 2% is from the bumps, 1.5% is from rental rate increases and another 70 basis points is from other miscellaneous items. In that number, we're also assuming that bad debt will increase in the second half of the year, will offset by about 90 basis points.

So if you assume that we hit the bad debt from the first half of the year, it's similar in the second half of the year, that would increase our same store by for the second half of the year, would be 4.3%. That would bring our 2017 midpoint to about 4.7%. So there is some potential pickup there.

Speaker 3

Hey, Craig, it's Scott. And that increase in our annual guidance by 25 basis points, the vast majority of that had to do with lower bad debt expense in the second quarter. So that was the vast majority of the cause of the increase in our same store guidance range for the year.

Speaker 6

Okay. All right.

Speaker 4

And then just separately, Peter, maybe a little bit more color on the UPS purchase option. It sounds like it was negotiated at the time of the lease. Kind of what kind of, I guess, is baked into that? Kind of what could the IRR look like if they do execute that?

Speaker 2

George, why don't you take that?

Speaker 7

Yes. Craig, we can't disclose the economics. I can tell you that it is will be a probable transaction, but can close either the margin or the IRR. And then just like Peter mentioned in his prepared remarks, we feel really very good because it's a major going to be a major amenity in the Phoenix area.

Speaker 4

I guess maybe another way to ask it kind of what was the yield on that project and maybe what are market cap rates in Phoenix in that submarket?

Speaker 7

Sure. So the GAAP yield, which is our first year cash NOI over a GAAP investment basis for the whole parcel, which includes our building plus the recently acquired 66 acres is 7.2%. It has bumps, the lease has bumps and then market cap rate, I would say in Phoenix would be in the range of high fives, low sixes.

Speaker 4

Great. Thank you.

Speaker 7

Thank you.

Speaker 0

Your next question comes from the line of Dave Rodgers from Baird. Please go ahead. Your line is open.

Speaker 8

Yes. Good morning, guys. Maybe stick a little bit with the development pipeline. Jojo, can you talk a little bit about the activity maybe that you're seeing at Park 94 in Sycamore and any early activity out at the ranch?

Speaker 7

Sure, sure. So First Park 94, as you know, it's already 50 we recently completed First Park 94 and First 215. And First Park 94, as you know, we're already 50% leased. We'll continue to get inquiries there and tours, but no other lease to report at this time. We're encouraged with the recent announcement of this major, major manufacturer in the market called Foxconn and that will add significant amount of economic vibrance in the Southeast Part Of Wisconsin which really serves the Chicago market.

So we don't really know what is going to be funded and the timing, but do know that we have a Class A park there to service whatever happens to that huge, huge investment. In terms of 02/15, just completed the 242,000 square feet. It has frontage on two fifteen between two interchanges. We like that asset a lot. There's few competitive buildings in that size range and we've had inquiries and we've also had tours but no lease to announce at this time.

In terms of the Ranch, that is the six building development that totaled 336,000 square feet. We're on track to complete that project by the end of this year. We're very excited about that project. As you most of you know that's in the submarket of Chino. And Chino today for high quality product has a sub-one percent vacancy.

And so in that project, despite not finishing the project, we've had inquiries and tours as well. But again, like the other projects, nothing more in terms of leasing to report at this date.

Speaker 8

I kept you at about 120,000,000 of capital at risk against your $375,000,000 There could be other things that I'm not aware of in that number. So I guess update that number for us if you could Jojo. And then for Peter maybe a broader question too just on development. It sounds like you're bullish. You raised $75,000,000 in June, clearly for some value creation.

You've been accelerating asset sales, but the development pipeline is kind of at a lower point right now. So I guess is that just a lull in the pipeline? Is it timing issue? Give us a sense of kind of your confidence in kind of really growing that pipeline in the second half.

Speaker 2

So I think your question about the cap, there's $152,000,000 of capacity on the $325,000,000 not $375,000,000 So it's $325,000,000 Got $152,000,000 in capacity there. With respect to the question about development, look, we expect demand to continue to outstrip supply in several markets that we're active in and we continue to evaluate new development opportunities. I suppose in the development game, a quarter does not a trend make. So year to date, we've also acquired additional parcels that are in good markets where we've had success in the past. So we're pretty optimistic about several of the opportunities that we're looking at and we'll let you know when we get started there.

And Dave, just

Speaker 7

to add a little bit more color to the spec, what's used in the spec and provided capacity of 152, 70% of what's in that spec cap is the projects we just talked about, the two fifteen, The Ranch and the First Park 94 of which two projects we completed recently. The rest is spread around five other projects, which is mostly partially leased. Okay, got you. Thanks for the color guys.

Speaker 0

Your next question comes from the line of Eric Frankel from Green Street Advisors. Please go ahead. Your line is open.

Speaker 9

Thank you. First, can you maybe update us on what determines your pace of dispositions in your portfolio? You ask that question? I'm sorry. Can you just help to explain what determines the pace of dispositions in your portfolio?

Speaker 2

Sure. It's pretty straightforward. The pace of our dispositions is dictated by our ability to maximize value. And right now, we're continuing to see very good value on the assets that we want to sell. The buyer base consists largely of local investors, ten thirty one buyers, and users.

But, yeah, the pace and the reason that we picked the goal that we have of 150,000,000 to $200,000,000 is determined by value maximization on the sales.

Speaker 9

And do you have I know you don't really set capital allocation guidance, but do you have any gold in store for what you plan this year and maybe going forward on an annual basis based on your field today?

Speaker 3

Well, on sales, Eric, it's Scott. We gave guidance of 150,000,000 to $200,000,000 for 2017. And that number this year is probably a little bit higher than average than it's been over the last six or seven years. And then when we go through the budget process later half of the year, we'll make a determination on what 2018 will be.

Speaker 2

Yes. Our investment pace depends on the opportunities that we see and the profitability of those opportunities. On the sales side, if we continue to see great pricing on the sales and we end up exceeding our goals, that would be fine too.

Speaker 9

Are there any thoughts in maybe trying to couple together a portfolio that might appeal to investors given there needs to be growing investor demand for even for smallish assets in a variety of different markets?

Speaker 2

Right now, we're not having any issues selling the assets that we want to sell on a one off basis. We're able to maximize price that way. So if we had the opportunity to do better on a smaller portfolio, sure, we'd look at that. But right now, we haven't needed to do that.

Speaker 9

Okay. I'll jump back in the queue. But final question, Peter, maybe you can just remark on which markets or submarkets where you're seeing supply starting to peak a little bit.

Speaker 2

Sure. Jojo, you want to Sure. Add more on So

Speaker 7

basically most markets as we see it, they're still solid in terms of demand exceeding supply. And Eric, we see that to continue. But there are some pockets we know that where tenants have more options. And what are those? North Houston, I would say, tenant has more options there.

And therefore, you will have a more difficult time pushing rent if you have a portfolio in North Houston. The I-fifty 5 core in Chicago, tenants are starting to have more options there too. I would say, if you're a prospective tenant, you would have some more some choices in South Dallas for big box and that's specifically in the 35 East And 45 Corridor that would be five to 06:00 in your dial. And if you're a tenant which requires about 200,000 square feet or less in Phoenix, you would have a bit more choices than last year.

Speaker 9

Okay. Thanks. I'll jump back in.

Speaker 0

Your next question comes from the line of John Guinee from Stifel. Please go ahead. Your line is open.

Speaker 10

Great. A couple of questions. First, your Chino deal, six buildings, Can you talk a little bit about the size and scope and what's right for that market? And it looks like you built Chino for about $93 a foot, which is probably spread out over the very different between the large buildings and the small buildings. But what's your investment basis per buildable foot in the land, Jojo?

Speaker 2

Sure. Sure. So

Speaker 7

couple of things. One is that first, the size range, 49,000 square feet up to 330,000 square feet. So and then number of buildings in between that. We designed it that way because we saw that the size range within those that I specified to you was clearly, clearly underserved. So if you're a tenant really needing anything, just say 50 to three thirty today and you want it to in Chino in a Class A property, there is virtually no supply.

So in terms of basis, we came in at a basis we felt very, very attractive because we came in at our you know, I can't, you know, give you the exact number, but under $20 a foot. I will tell you that, you know, smaller buildings are more more more expensive to build. I think everybody knows that. But today, if you can find entitled land sites in Chino, they are approaching $30 per square foot. So in terms of the market and yield, so far rents in Chino have increased significantly from the time of our underwriting and today rents have increased an additional 20%.

We forecast approximately a 6.9% GAAP yield and that's first year cash over GAAP investment basis. We think these buildings would trade at a four today.

Speaker 10

Great. Thank you.

Speaker 7

Thanks, John.

Speaker 0

Your next question comes from the line of Michael Mueller from JPMorgan. Please go ahead. Your line is open.

Speaker 11

Hi, thanks. A couple of questions. First of all, are you it doesn't sound like it, but are you seeing anything at this point that would lead you to believe that your average CIP balance next year, which you have under process of, call it, dollars 150,000,000 give or take this year, I guess, before the project was placed in service, that you'd see a material change in that amount of development?

Speaker 7

Michael, we don't give guidance in terms of how much we're going to construct. I can tell you right now we have this $136,000,000 which we're going focus on executing, finishing up the ranch and then leasing everything. I would say that if you turn to Page 22 of our supplemental, we have landed substantially entitled that we can build on. Nothing to announce at this time, but we continue to review. You know that year to date we bought sites in Southern California and Phoenix, which we have had recent success.

So we will let you know once we start new projects. But we're optimistic that these investments that we've made in land will bear fruit.

Speaker 3

And Mike, is Scott. And we're continuing to look for other land sites now to do future development as well. So we have the land inventory that Jojo just discussed. And again, we're in the market all the time looking for other development opportunities.

Speaker 11

Got it. And then just a clarification question. Pierre, in your opening comments, you said that you reminded people that your GAAP yield is your cash NOI over the GAAP basis in the building. I guess when I think of a GAAP yield, I usually think of the GAAP NOI over the cost. So I'm curious like what's your definition of your, I guess, the cash yield?

Speaker 3

Mike, it's Scott. I think there's there are different ways that people use that definition. When we established this back, I think, about 2011 and we came up with GAAP yield at that point in time. So I think the way you think of cash yield is the way we think of GAAP yield. The reason we call it GAAP yield is because it's we use the GAAP basis as a denominator.

But truly, the first year cash is the numerator. So I think what we call GAAP yield is probably what you think is cash yield and that's something that we yes, cash yield.

Speaker 2

Really cash on cash.

Speaker 3

Yes. So that's something we probably should look at on a go forward basis because we have other questions on that from other investors and analysts as well.

Speaker 2

Okay. That was it. Thank you.

Speaker 0

Your next question comes from the line of Jon Petersen from Jefferies. Please go ahead. Your line is open.

Speaker 6

Great. Thanks. Probably just one question I'm curious if we can get an update on your guys' dividend policy and just kind of remind us of where the dividend stands versus taxable income and how much NOLs you guys kind of still have in the bank to kind of shield against that. Just trying to figure out if you've kind of been going four quarters and then a raise and four quarters and then a raise.

Are you going to be able to get the next two more quarters without needing to raise?

Speaker 3

Sure, John. It's Scott. When we look at the first six months of 2017, we're in very good shape from a taxable income point of view. The wildcard that we have in the last six months is going to be from property sales and what those tax gains are. We've been pretty successful in doing ten thirty one exchanges with acquisitions.

And if we have future acquisitions in the last six months of the year, we can do that. And you're right, if that doesn't work, we do have $60,000,000 of NOLs that we can use. So we think we're in pretty good shape when it comes to taxable income for 2017. As far as future dividend growth is concerned, if you looked at what we 've done is whenever cash flow has grown, the dividend has grown as well. And obviously, that's something that the Board determines, but that's generally been our dividend policy on an annual basis.

Speaker 6

Got it. All right. That's it. Thanks.

Speaker 0

Your next question comes from the line of Bill Crow from Raymond James. Please go ahead. Your line is open.

Speaker 12

Hey, good morning, gentlemen. Question for me is on merchant builders. There's been some speculation that the pace of activity on their part has increased significantly over the past year. What are you seeing out there as far as who's doing the building? Are you how confident are you that the discipline that we've seen thus far can kind of sustain itself?

Speaker 7

Yes. Bill, this is Jojo. Has been part of the increase in development has been by merchant builders. There is a significant amount of interest from investors point of view in buying industrial. Wherever we go in conference and we meet industrial really is a top product type to invest in.

So of course, people build and they sell. In terms of how it's affected the markets, Bill, we went through a number of markets that we have our eye on because tenants have more choices. So far, we continue to see especially where we develop, we develop we're developing markets that we think demand will still alter the supply. And then on top of that, not only do we focus on submarkets, we focus on size ranges because not all size ranges are made the same. So we have a very local bottom up also competitive analysis that we do that we focus on not only the submarkets that are underserved, but the size ranges that are underserved.

So that's how we deal with potential competitive supply.

Speaker 12

So Jojo, would you say that the percentage of total development being done by merchant builders is picking up relative to the REITs? Is that a fair statement?

Speaker 7

That's a fair statement.

Speaker 12

Okay. Very good. And maybe just if you could talk about the lending environment, there's no sign I assume yet that the lenders might be pulling back even in some of these more concerning markets. Is that fair?

Speaker 2

Yes, that's fair to say. The lending community is still fully engaged. We haven't seen that diminish at all.

Speaker 7

And then when we have conversations with our bankers and then on the private side, the lenders require recourse, full recourse in a lot especially in spec deals.

Speaker 12

Okay. I appreciate the comments. Thanks.

Speaker 0

Your next question comes from the line of Eric Sprinkle from Green Street Advisors. Please go ahead. Your line is open.

Speaker 9

Thank you. Just a few quick follow ups. Jojo, just to confirm, you're talking about land prices in Inland Empire and Chino. When you say $30 per square foot, you mean land square foot, not building square foot, correct?

Speaker 7

That's right. That's land foot. In Chino, in Ontario, that's land foot. Yes.

Speaker 9

So that translates roughly that translates to more like $55.60 dollars per square foot or 60 to $65 per square foot, excuse me, on a building square foot basis?

Speaker 7

Yes. On a building square foot basis. You know, in smaller buildings, you won't build more than 45. So yes, you're right. So you adjusted for that already.

Can build to 50%, but you'll build less. Yes, you're right.

Speaker 9

Okay. And then just regarding same store performance or actually just the operating portfolio, The releasing spread numbers obviously was pretty terrific. Is there could you provide a rough breakdown which markets produced the highest spreads?

Speaker 5

Yes, Eric, this is Chris. Again, the first half of the year, we showed overall cash rent increases of 7.2%. Markets that drove that the most were our Chicago market, our L. A. Market and then our Dallas market.

All of those markets had rental rate increases in cash increase in excess of 15%.

Speaker 9

That's helpful. Thank you. And final question just regarding development. Certainly, I think your equity rate certainly implies that you're going to be and your leasing with in Phoenix certainly implies you're we're doing more development in the second half of the year. Would you expect those starts to be based on land you don't own yet or that's in your land bank?

Speaker 7

It would be again, it would be either. Like Scott had mentioned, we continue to look at other land sites, but it could be either Eric. It could be either a land site that we acquire pretty soon and build on it or it could be on our existing landholdings.

Speaker 9

Well, you must have a rough idea though just based on we're almost we're our third of the way through the third quarter. So I'm assuming you have a rough idea of what your starts going to look like.

Speaker 7

Correct, correct, Eric. So I would it was more probable on the land that we own.

Speaker 9

Okay. That's all I've got. Thank you.

Speaker 0

There are no more questions in the queue at this time. Mr. Harman, I turn the call back over to you.

Speaker 1

I'll turn it back over to Mr. Basile, but thank you.

Speaker 2

Thank you, operator, and thank you all for participating on our call today. As always, please feel free to reach out to Scott, Art or me with any follow-up questions. Enjoy your summer.

Speaker 0

And this does conclude today's conference call. You may now disconnect.